The global remittance industry is massive with billions of dollars transacted every day. In 2017 according to a report compiled by the World Bank, global remittances had grown to the $613 billion mark. That figure marked a seven percent increase from $573 billion in 2016 and set a new record. Additionally, in 2017, five major destinations namely India, China, Philippines, Mexico, and France, contributed to 35 percent of total remittance inflows. China and India, however, increased the largest amounts, both of them coming in at almost 60 billion in 2017.
Leading firms operating in this sector continue to post significant profits annually. For instance, leading remittance fintech company TransferWise announced that, for the fiscal year ending March 2018, it had garnered a post-tax net profit of $8 million. Additionally, Transferwise also revealed its 4 million users transacted $3.9 billion monthly.
The data suggests that the global remittance industry will continue to grow. Projections modeled by different research firms regularly estimate this number to pass the trillion dollar mark in the coming years. The Blockdata report reinforces this position stating: "The global remittance industry is projected to hit $1 trillion by 2022 and $1.4 trillion by 2025."
Blockchain remittance cheaper and much faster
While the global remittance industry is large, it is not without its challenges. Moving money across borders is - for the most part - a slow and costly process. Due to global financial regulations, many of which are related to Anti Money Laundering (AML), financial institutions must navigate complex bureaucracy as they process such payments. To fulfill the letter of the law, these processes take time.
Moreover, financial institutions traditionally charge significant fees to process payments, some of which can be attributed to the number of intermediaries involved in a cross-border transaction.
Following its research, Blockdata determined that cross-border payments processed through blockchain-based solutions are significantly faster than those which go through the traditional financial system. The report stated: "Remittance settlement time is 388 times faster on blockchain than traditional channels."
To arrive at this figure, Blockdata utilized data provided by the World Bank and data gleaned from selected blockchains. The firm utilized the average transaction times of a sample of 1800 remittance payments as well as the average transaction times of selected blockchains to calculate the figure. The report further added that "transfers are ( …) 127 times cheaper than through traditional remittance channels."
Aiming to capitalize on the advantages held in blockchain technology, entrepreneurs are creating blockchain-based solutions for the global remittance industry. Blockdata found that the number of remittance companies that utilize blockchain technology and or cryptocurrencies has been growing steadily in the last decade.
The report names Philippines-focused GCash, Nigeria-based SureRemit, and Singapore-based Instarem as notable blockchain-based remittance firms. Curiously, Blockdata researchers found that most of the service providers utilizing blockchain technology did not create their own blockchain with a new digital asset. The report states: "Our results show that about two-thirds of these startups utilize blockchain technology without their own token. Most of these companies are building on existing blockchain infrastructure like RippleNet or Stellar."
Another important finding is the realization that traditional corporations are interested in adopting blockchain technology to improve their services. For instance, MoneyGram and Western Union, are both experimenting with a Ripple propriety service, xCurrent, a blockchain-based settlement solution for cross-border payments. Moreover, banks such as UBS, Deutsche Bank, and American Express, are also developing blockchain-based products for remittances.
The allure provided by blockchain technology in facilitating cross-border payments is even attracting seemingly unrelated players. There are reports that social media giant Facebook is planning to launch a remittance-focused cryptocurrency for use within its messaging application WhatsApp.
For users of the global remittance industry, the advantages provided through the use of blockchain technology have far-reaching implications. Blockchain settlement times typically take mere minutes while those within the traditional financial system can take up to a week. The timeliness of remittances can mean the difference between being able to pay rent on time or not for recipients. Hence, an increase in settlement speeds is highly beneficial for the end user.
Lastly, the cost savings mean that the recipients actually receive more money in comparison to the same amounts transacted through the traditional financial system. This means that the recipients have more funds at their disposal and are more likely to be able to improve the quality of their lives.